In the good books: Do your own accounting
We asked Angus Ogilvie, an accounting expert from Generate Accounting, to answer some questions about payroll, MYOB, and employees. You can email Angus at email@example.com, or connect with him on LinkedIn.
In about 4 weeks, a new “Sessions” piece from Angus will be published that will tackle some bigger accountancy issues that entrepreneurs face.
Both are accounting software programs that enable users to keep on top of their business accounts. They enable you to produce invoices for your customers and keep a tab on your suppliers and their invoices. They also allow you to code all your transactions to the correct account. Every transaction in a business has to be coded to an account so that the accountant can produce a set of financial statements at the end of the year.
2. In your professional opinion, which application is best for startups?
We have used a lot of accounting software programs and all of them have pluses and minuses. Of the ones we have used, we find that our clients get to grips with Xero more quickly than the other programs on the market. They find it more intuitive than the other programs. It links to the client’s bank account so they are able to go in each day and quickly code their transactions from the day before. This means that you can see exactly where your business is tracking each day.
Xero have invested a huge amount of time and energy into their help section. In addition, Xero TV is excellent with a large number of easy to understand videos. If all else fails, Xero support are friendly and efficient in answering any tricky questions.
3. What limitations do Xero / MYOB have?
All accounting software has limitations. Both Xero and MYOB are core accounting platforms so both them need add-on software that give additional functionality. For instance, Xero is not strong with inventory or payroll and so you’ll need to use a third-party app (or add-on) if you want to use Xero. Xero are focusing on getting their core software right and this has been a real boost for a growing number of really innovative add-on providers.
Make sure you ask your accountant first before setting up Xero – they should have a really cost-effective option to set up the software for you so that it’s ready and optimised for your business.
Don’t reinvent the wheel and stick to what you are good at.
Also, make sure you work with an accountant who allows you to call them without charge to ask any curly questions. This could save a lot of frustration down the track.
4. What are the top 5 most common add-ons for Xero that you see many businesses using?
By far the most common add-on is for payroll. There are heaps of options in the market and start-ups are spoilt for choice. We favour iPayroll because they have such excellent customer service. Other options include Smart Payroll, MYOB and a really innovative start-up called Thank You payroll out of Dunedin.
Businesses who have a lot of stock (inventory) tend to use something like Unleashed. This solution will probably need a consultant to implement but the investment upfront will be repaid many times down the track. It is an excellent stock management system.
GeoOp is gaining a lot of ground with tradespeople who need an app that they can use on a mobile device. It allows them to produce invoices and plan their day.
For retail businesses, Vend is clear favourite as a point-of-sale solution.
The great thing is that all of these solutions are made right here in NZ.
5. From an accounting point of view, what is different between an employee and a contractor?
There’s a huge difference. At its most basic, the difference lies in how you pay for the person’s time. A contractor sends you an invoice and you send an employee a pay slip. Typically a contractor will have more than one source of income – you’ll just be one of a number of companies that she might work for. An employee usually works full-time just for you.
You don’t have to worry about PAYE or Kiwisaver with contractors, but you may have to deduct withholding tax from any payments. Talk to your accountant about this. What you pay will be based on whatever you negotiate and this should be set out clearly in a contract.
Employees are more complex. They are entitled to Kiwisaver contributions from their employer and you have to take PAYE off their wage or salary and pay this to the IRD regularly. There may be childcare deductions and court fines to account for as well. You need to keep a running tally of their sick leave and you’ll want to track their entitlement to annual leave. That’s why we always advise our clients to use a payroll system. That way there are no mistakes.
6. How often should I elect to pay Kiwisaver and PAYE?
As a small employer (paying less than $500,000 PAYE per annum) you will have to make monthly PAYE payments which is a good thing. It means that the payments are regularly and a lower amount. That way it shouldn’t be too much of a drag on cashflow.
7. How do I pay Kiwisaver and PAYE.
Part of this exercise is to complete an EMS schedule for the IRD. The great news is that if you use payroll software, this is done for you. You will also have to pay the money to the IRD on a monthly basis using internet banking.
8. How do employee equity shares affect my payroll and accounts?
That all depends on what’s agreed so consult your accountant first.
9. What are some of the biggest accounting mistakes that you see startups making when dealing with employees / payroll?
Probably the biggest issue is start-ups employing team members without an employment agreement. This happens more often than you would think. Employment agreements are a legal requirement and not having one can get an employer into a lot of trouble very quickly. Your accountant or lawyer will be able to give you advice on these agreements.
There are templates available online including the Department of Labour site. We advised clients to be cautious about using these as the way they are written will not necessary take into account your unique requirements as an employer.
The 90-day clause enables employers to take a punt on an employee. With the clause in the employment contract, an employer can manage an employee out of the position if it doesn’t work out during the first 90-days. This is essential for start-ups and the government had small businesses in mind when they brought the law in. However, you have to have the right clause in the agreement and you’ll need advice if you want to let an employee go even with the clause in place.Don’t try DIY employment law unless you have a large amount of spare cash that you would like to gift to a former employee.
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Start-ups can also get themselves into a real pickle if they don’t use payroll software. That’s because it’s just too hard to juggle payroll manually and keep track of holidays and other entitlements.